Quantitative Easing & Helicopter money

IN NEWS:

• Due to slowdown in the economy, the Telangana Government has asked the Reserve Bank of India to go for ‘helicopter money’ and ‘quantitative easing’ to boost economy.

HELICOPTER MONEY:

• Helicopter money is a policy used to stimulate the economy during a recession or when interest rates fall to zero. It involves printing large sums of money and distributing it to the public in order to stimulate the economy.
• It is an unconventional expansionist monetary policy tool. In 2016, Japan considered using helicopter money to assist with the country’s slowing growth.

QUANTITATIVE EASING:

• Quantitative easing is an economic monetary policy intended to lower interest rates and increase money supply.
• The central bank will buy a large amount of financial assets, usually bonds, either from the government or other private sector market participants like banks.
• Unlike helicopter money, QE is a practical concept. While helicopter money involves the distribution of printed money to the public, central banks use quantitative easing to create money and then purchase assets using the printed money.
• QE does not have a direct impact on the public, while helicopter money is made directly available to consumers to increase consumer spending.

PRELIMS QUESTION:

Q. Which of the following monetary policy concept involves printing and distributing large sums of money: 

1. Quantitative easing
2. Open market operations
3. Helicopter money
4. All of the above

Answer to Prelims question